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Banking
Commercial banking is a business
organization which deals in money.
Maintenance of liquidity and
profitability
Credit creation.
Functions of Commercial
bank
1.Acceptance of deposits.
2.Advancing loans
3.Investment of funds
4.Purchase and sales of foreign
exchange
5.Other functions
Issue of travelers cheque
Safe custody of valuable goods.
Role of commercial banks in
India
Capital formulation.
Monetiazation
Finance for the priority sectors
Provision of the medium and long
term loans
Cheap money policy.
Classification of Banks
1.Indigenous banking.
2.Foreign exchange banks
3.Agricultural banks
4.Industrial banks
5.Central banks
6.Scheduled banks.
Sources of banking funds
1.Share capital
2.Deposits.
3.Interest on Loans
4.Credit creation
5.Reserve funds.
Investment policy of banks
Principle of safety
Principle of liquidity
Principle of productive investment
Principle of Diversity
Banks Investments
1.Profitable investments
2.Non- profitable investments
Cash reserves _____
Dead stocks
Cash reserves
Legal obligations
Banking habits of the people.
Local business condition
Nature of the account
Size of the deposits
Structure of the money market.
Dead stocks
Building, furniture, stationary etc.
It cannot be sold easily
Bank invests sizable amount on
these type of investment to maintain
its prestige and reputation in the
market.
Credit creation
Credit creation Continued
Central banking
A monetary institution whose main
function id to control, regulate and
stabilize the banking and monetary
system of the country in the national
interest.
Need :
1.Control of credit.
2.Issue of paper currency
3.economic help to commercial banks
4.Implementation of the monetary policy.
Comparison of central bank
&Commercial Banks
Both acts in money
Both creates credit
Extend short term credits.
BUT
Central authority
Non profit motive
No competition
Monopoly of note issue
Bankers to the Govt.
Bankers bank.
Functions
1.Monopoly of note issue
Uniformity in the monetary system.
Greater confidence of the public.
Elasticity in the monetary system
Control of credit
Profit for the govt. (Synorage)
Stability in the internal and external value
of money.
Functions….
2.Acts as banker to the government
3.bankers Bank
4.Lender of last resort
5.Bank of clearance
6.Custodian of nations gold and foreign
exchange
7.Publishes economic statistics & other
useful information.
8.Controller of credit.
Objectives of credit control
1. Stability in the internal price level
2. Control of the business cycle
3. Stability in the exchange rate
4. Stabilization of money market
5. Promotion of the economic growth
6. Preparation of war
Methods of credit control
1.Qualitative
Moral pressure
2. Quantitative
Bank rate
OMO
Variable reserve ratio
Selective credit control